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Statist ideology bars water-crisis solution

Mokonyane invites investment from private sector but creates conditions that drive it away

12 December 2017 - 06:09
Neels Blom

Controlling: Water and Sanitation Minister Nomvula Mokonyane, seen in this file photograph, says that she does not want large, established companies to land contracts and that she will decide which projects to build and who will build them. Picture: SIKHO NTSHOBANE

Ask how SA must solve its escalating water and sanitation crises and a chorus drowns out any sense that may be hidden among the replies. However complex and numerous the factors underlying the failures in service delivery, a statist ideology predetermines the search for solutions.

This is no more evident than in the government’s call for private sector investment in water and sanitation infrastructure.

Ordinarily, multiple if divergent ideas presented on a single platform would be a good thing. Ideas compete in the bidding for potentially lucrative government business as much as engineering prowess and managerial acumen do. The trouble is that only one class of idea is up for discussion: that which is defined and approved by the government and its agencies.

The philosopher Noam Chomsky writes in The Common Good that the way to keep people passive and obedient is "to strictly limit the spectrum of acceptable opinion but allow very lively debate within that spectrum — even encourage the more critical and dissident views. That gives people the sense that there’s free thinking going on, while all the time the presuppositions of the system are being reinforced by the limits put on the range of the debate."

At the Water Infrastructure Investment Conference in Sandton, Water and Sanitation Minister Nomvula Mokonyane made it clear that she wanted a say in all investment matters.

She told the summit that she did not want the same old companies to carry on getting the work and that she would decide which projects to build and who would build them. This is where sense is obfuscated. The drive for investment had to be different, Mokonyane said, yet the same old weaknesses and constraints would remain.

Snowy Khoza, executive chairwoman of infrastructure management firm Bigen Africa, told the conference that the biggest challenge in the water sector was poor project preparation, which made them unbankable. It was reinforced by the government agency Trans-Caledon Tunnel Authority (TCTA) chairwoman Zodwa Manase, who said that the department lacked the skills to handle mega water projects and that it had to be sourced from the private sector.

Mokonyane was supported in asserting her authority by Energy Minister David Mahlobo, who said investors had to understand that the government wanted partnerships, "not a master-servant relationship".

Indeed. But Mahlobo also said there was no policy uncertainty, which suggested the terms of any partnership had been predetermined.

Chomsky’s thoughts on power relations are apposite. Mokonyane’s address had all the hallmarks of a "meaningful conversation" as she called it, yet she revealed the attitude that limited the range of debate and excluded free thinking.

"Not surprisingly, it is difficult to find partners to work on this basis," water expert Mike Muller commented, "particularly if they are going to have to pay for the project."

The department has issued three prospectuses for participation in private-public partnerships. The investment gap over 10 years varies from R330bn just on new infrastructure to as much as R1-trillion if maintenance, upgrades and planned initiatives are considered.

The department breaks down water infrastructure to bulk abstraction from the primary source, which is the responsibility of the government (R330bn to R1-trillion), and water services (about R82bn in treatment and distribution) as the responsibility of municipalities and water boards.

Investors are understandably more likely to weigh the bigger projects — for the bigger money, economies of scale and greater certainty of returns.

This introduces perhaps the biggest challenge in water investment: how do investors secure a return? As it is, the department has threatened to cut off municipal supplies over a R10.7bn debt in arrears.

Most of water supply is allocated to agriculture (59%) and domestic use (29%, rural and urban), which are the water users least likely to pay for the full costs of their supply. This is compounded by the costs of supplying high-quality water.

It means, says water expert and political scientist Anthony Turton, that the water sector is not investable for the private sector. "Water has no commercial value and therefore is supplied at below the cost of production and reticulation. Therefore, despite a massive demand for water, there is no bankable business case for investing in the water sector."

Turton advocates a shift in thinking about water to what he calls "a paradigm of abundance", in contrast with government practice predicated on scarcity.

If scarcity were the organising principle, however, investment would make sense as demonstrated by the TCTA with projects benefiting industrial users that can pay and in which public funds can be targeted for social projects to support supplies to poor communities.

"The TCTA is structured to raise limited-recourse private finance (creditors have limited claims in the event of default), which it has done successfully on a number of projects, notably the Berg River Dam, which is currently saving Cape Town from itself," says Muller.

"… this approach requires co-operation between government, water users and funders about the nature of the project, its timing and how it is procured".

It also presupposes a high degree of tolerance from investors for what amounts to a subsidy to the poor.

Mokonyane acknowledged that investors were entitled to a return and that "either private investors or public through the fiscus must always have the assurance of payment guarantees". She said it was "a crucial component of dealing with non-revenue water".

Turton’s response is blunt, saying policy reflects a fundamental ideological disconnect. To mobilise investment and technology, there must be policy certainty, he says. "A long-term off-take agreement must be signed. That does not exist anywhere yet. The department is unbankable as it stands, because of governance issues and liquidity constraints.

"[The] government is no longer capable of raising capital on the bond market, for the same reason. Water does not have a defined economic value, so there can be no reasonable return on investment. So why would the private sector now suddenly find it attractive when no other investment agency is allowed to invest in junk status, and the other preconditions have not been met?"

If there has been a change in government policy, it is not to privatise water services. Thus, discussion is limited to what conforms to a statist ideology and the concurrent monopolies of the government’s agencies. If there is cause for uncertainty, it is the mystery of the government’s insistence on maintaining a policy that has failed.

SA needs continuous investment in water and sanitation infrastructure, but whether there is any appetite for teaming up with a largely captured state and a government department that is technically and financially incapacitated is doubtful.